Retiring earlier and living longer: why every woman needs the right financial strategy to make sure their savings will last their distance.
Women in Australia can look forward to long and healthy lives, with the average female life expectancy now higher than 841. What’s more, women tend to leave the workforce earlier than men, at an average age of 52 which means many women end up spending more than 30 years in retirement2.
While this is great news for women, it also highlights the need for careful financial planning – or else you could risk outliving your finances. So whether you’re just starting out or winding down your career, there are plenty of ways to get ahead now to make sure your nest egg will be able to see you through.
Boosting your super
Your super is probably the most valuable asset you have when it comes to funding a comfortable retirement. Remember, the more you put into it, the less you’ll have to rely on the Age Pension when you retire.
But did you know that women’s salaries, on average, are still 16.2% lower than men’s3? This means that women’s compulsory super contributions from their employer are lower as well.
That’s where salary sacrificing can make a big difference. By putting a portion of your pre-tax income directly into your super, your nest egg will be able to grow faster. For example, imagine a woman entering the workforce at age 20 with an annual salary of $50,000. If she salary sacrifices just $20 a week throughout her working life, she could end up with around $44,000 extra in super by the time she retires at age 674.
Making time for family
If you’re thinking of taking time out of the workforce to raise kids, you’ve probably considered the short-term impact this will have on your household budget. But have you also worked out what it could mean for your retirement savings? You won’t be receiving employer super contributions while you’re not working, which can really set you back by the time you’re ready to retire.
That’s why it’s important to plan your career breaks carefully. You could consider putting a little bit extra into super to make up for what you’ll lose in employer contributions.
You can make a personal contribution at any time (while under age 65) – either before your career break or when you’re back at work. But as with most investments, the earlier you put money in, the longer it will have to grow.
Going it alone
Since women live longer than men, if you’re in a relationship it’s worth considering the possibility that you may outlive your partner. In fact, at least one in three Australian women over 65 is widowed5. So even though it may be unpleasant to think about, it’s important to know how you’d manage your finances on your own.
Here’s something else to keep in mind: every year in Australia, over 45,000 marriages end6. And while divorce is difficult for both parties, women tend to be financially impacted the most. So, if you’re a full-time homemaker who depends on your husband or partner’s income, then you need to have a back-up plan so you can keep building your retirement savings if your relationship ends.
Planning your retirement income
Once you retire, your lifestyle needs will probably change over time. In your early years of retirement, for instance, you might want to focus your time and money on more family time, travel and other leisure activities. Then, as you get older, you’ll probably have to spend more on health care7.
It’s also worth understanding the different ways you can access your super when you retire. You might choose to cash it out as a lump sum, so you can immediately pay off any outstanding debts. Otherwise, you might prefer to take it as a regular income stream by setting up an account-based pension or buying an annuity. As the first step, ask your financial adviser about your options, so you can decide which one is best for you.
Your adviser can help
Every woman’s situation is unique, and their financial strategy should be too. Your adviser can give you the right guidance at each life stage so you can make the most of your money and look forward to the future with confidence.
1 Australian Bureau of Statistics, Life expectancy and deaths hit historic highs, 2014.
2 Australian Bureau of Statistics, Retirement and retirement intentions, Australia, 2015.
3 Workplace Gender Equality Agency, Gender pay gap statistics, August 2016.
4 Calculated using ASIC MoneySmart Superannuation Calculator. Assumes an investment return of 5.7% pa, administrative fees of $50 pa, investment fees of 0.5% pa and tax on earnings of 7% pa.
5 Australian Bureau of Statistics, Reflecting a nation: Stories from the 2011 Census, June 2012.
6 Australian Bureau of Statistics, Marriages and divorces, Australia, 2014.
7 Australian Productivity Commission, Housing decisions of older Australians, December 2015.
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This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.